It could take several years before the regulator is able to reform the "broken"
pensions market, experts warn

Pension rip-offs will be perpetrated for “at least two more years” while regulators attempt to restrain insurers from making excessive profits from savers, it was claimed last night.

The delay could deprive 330,000 people approaching retirement of thousands of pounds in income, campaigners warned.

In what has rapidly become a political battleground, Steve Webb, the pensions minister, has welcomed a City watchdog inquiry into the sales of annuities by insurance companies as a “crucial step to helping people get the most out of their hard-earned pension savings when they retire.”

However, regulatory consultants told The Telegraph it will take a minimum of two years before reforms are implemented to end the rip-offs. In the meantime, savers will be exposed to what regulators branded a “broken” pensions market.

Ros Altmann, a former government pensions consultant said: “We need more immediate action – almost 1,000 people a day are buying an annuity and they are vulnerable to all sorts of exploitative practices.

Shopping around typically increased pension income by 7pc, it said. For those in poor health, the increase could double the size of the income payout. Yet the FCA found 60pc of people purchased an annuity from the company with which they saved during their working life.

The regulator expressed serious concern that insurers did not encourage people to shop around, and instead pushed customers into their own, poor-value annuities. A “market study”, which will take 12 months, has been launched by the FCA to tackle the issue.

He said: "Once the study is complete, there will be a period in which the regulator discusses the results and a consultation document is written proposing reforms.

“Several months of consultation will ensue, followed by a period analysing the feedback. That will lead to a final policy statement, followed by a gap while firms are asked to implement changes. So we could be waiting some time.”

Industry experts said there were immediate steps the regulator could take. Steve Lowe, of insurer Just Retirement, said: "The regulator already has the power to stop companies selling standard annuities to customers who have health conditions and therefore qualify for higher incomes, yet this continues to occur."

Nick Poyntz-Wright, director of long term savings and pensions at the FCA, said insurers found acting unfairly will face immediate action.

He said: “The annuities market isn’t working for consumers and we are committed to making it better. The work we’ve done so far has revealed a number of parts of the jigsaw puzzle, but we don’t yet have all of the pieces in place.

“To make changes that will stand the test of time and make a genuine difference for people considering their retirement income, we need to look at the market in its entirety. This is the right way to approach such an important piece of work.

“Meanwhile we will be rooting out instances of poor practice, and if we see firms behaving with less than full regard to their customers’ best interests we will not hesitate to step in and take action."